Ruling on BMI licence could pose problems for Pandora

A court ruling in the US yesterday will potentially cause problems for leading American streaming service Pandora, after it was ruled that some key music publishers can withdraw their catalogues from the licence provided to the digital firm by collecting society BMI.

As previously reported, Pandora is wholly licensed in the US via the collective licensing system. On the recordings side, in America the record companies are obliged by law to license Pandora-style set-ups collectively, and do so via SoundExchange.

The publishers initially voluntarily opted to license Pandora et al via their collecting societies ASCAP and BMI. But in the last year or so some of the big publishers have started to look to licence more digital services directly, believing they can negotiate more favourable terms that way, and remove the restrictions that come with collective licensing deals.

Even though Pandora has been busy trying to negotiate down the royalties it pays via the various American collecting societies, for the time being at least it is still set on doing its licensing deals this way, rather than cutting direct arrangements with the labels and publishers. Which means the digital firm has been trying to stop the publishers from withdrawing from the collective licensing system.

And on the ASCAP side it was successful, for the time being at least, with a court ruling in September that publishers couldn’t take away from Pandora the rights to stream songs currently represented by the society, because the company’s current licence from the organisation clearly guaranteed them access to the full catalogue available at the time the deal was done for the duration of the agreement, which runs until 2015.

But in a similar squabble with BMI the court has ruled in favour of the society, mainly because of the timing and wording of the most recent agreement between Pandora and the rights group, which – a judge confirmed this week – allowed for alterations in catalogue, foreseeing that the big publishers were moving toward direct licensing in the digital domain.

In theory this means that Pandora could lose the rights to stream songs owned by Universal Music Publishing Group, BMG and Kobalt in the new year, which would require the digital company to do direct deals with those publishers or suffer some substantial holes in its catalogue.

Though, that said, additional comments by the judge, and a Department Of Justice rep who testified in the case, regards whether publishers can or cannot withdraw catalogue under the ‘consent decrees’ that enable the collective licensing process might make the big publishers less keen to make a sudden withdrawal from the Pandora licence in early 2014. Especially as lobbying is underway to alter consent decree rules in the US, and it might be better to make the big bold withdrawal from digital collective licensing if and when those changes have been achieved.